Asian Pay Television Trust (APTV) is a business trust that operates cable pay-tv and broadband services in Taiwan. It owns all the fibre and cable connections to customers’ homes. This “last-mile” access to homes is cost-prohibitive and extremely difficult to replicate. The company has a stable customer base of 760,000.
We initiate APTV with a BUY. We value APTV at a DCF valuation of S$0.64. This implies is a 43% upside, including dividends. Our target price pegs APTV at EV/EBITDA of 10.7x, still a 8.5% discount to regional peers.
What APTV does?
APTV* sells cable TV and broadband service** in 5 locations in Taiwan (refer to Figure 1). Revenue comes from monthly subscription fee of NT$529 (S$24) for 105 TV channels and NT$478 (S$22) from broadband. Cable TV accounts for 85% of APTV total revenue, with broadband 15%. The largest operating cost are content and depreciation, both are 25% and 23% of total operating cost respectively. APTV was listed on SGX in May 2013.
APTV is Taiwan’s 3rd largest cable operator with 14% market share. However, in the 5 locations (or called franchise areas) APTV operates, it is the sole provider of cable TV and broadband. An alternative to cable TV is internet TV (commonly called IPTV), owned by Chunghwa Telecom. On broadband, Chunghwa Telecom is the dominant 80% market share incumbent with its ADSL broadband service.
* APTV is a business trust that enjoy owns economic interest of Taiwan Broadband Communications (TBC), which is the actual operating entity that provides cable pay TV, and broadband services.
** For our Singapore based readers, APTV is similar to a Starhub cable TV and broadband service. StarHub has almost 500,000 cable TV customers that pays an ARPU of S$51 per month
What we find most attractive of APTV?
(i) Cable access to the home. APTV has spent more than 10 years to build up cable access into 1.2m homes. It is too costly and time consuming for any other party to replicate this infrastructure. That “little plug” in the home for cable belongs to APTV and it is very valuable.
(ii) Content arrangements with suite of local providers. Local content providers want viewership to attract advertisers. APTV large customer base makes them an attractive client for all content providers.
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